The US dollar remains largely within tight boundaries against the majority of G10 currencies today, in anticipation of the upcoming US CPI report and corporate earnings announcements. The yen stands out as a significant exception. The dollar has surged to JPY159.00 and has shown little sign of retreating. The apparent trigger is the increased speculation surrounding a potential snap election, which may be revealed by the end of next week. Japanese government bond yields surged in response to the anticipated developments. The finance minister’s remarks indicating that the US shares its concern regarding the one-way movement did not significantly influence the situation. The market is closely monitoring the situation regarding President Trump’s threat to impose a 25% tariff on Iran’s trading partners. However, the authority behind this move is uncertain, and the specifics of implementation remain ambiguous, despite claims of immediate effect. Tomorrow marks another pivotal decision day for the Supreme Court, with the potential announcement of the ruling regarding the president’s implementation of emergency tariffs.

The United States has proposed that halting Venezuelan oil shipments to Cuba will weaken the regime; however, it is noteworthy that last year, Mexico overtook Caracas as Cuba’s primary oil supplier. In a development that may not sit well with Washington, the EU seems to have reached an agreement with China regarding electric vehicle imports, which entails a minimum price along with additional stipulations. The EU has secured an agreement with Mercosur; however, it awaits the approval of the EU Parliament. Lastly, the European Union is currently engaged in advanced trade negotiations with India. The euro experienced a rebound following the subpoenas for the Federal Reserve, but this momentum halted yesterday around $1.17, just above the lowest retracement level of its recovery since Christmas Eve. The market is currently exhibiting indecision, fluctuating within a narrow range of approximately $1.1655 to $1.1675, as participants await the release of US CPI data and further leadership direction. Resistance levels are identified in the $1.1715-35 range. Following a dip to approximately JPY157.50 yesterday, the U.S. dollar rebounded during the North American session, reaching JPY158.20 and achieving its highest closing value since January 2025. Today’s follow-through buying has propelled the US dollar to JPY159.05. The rally followed new reports highlighting the potential for a snap election, even in light of remarks from Finance Minister Katayama. She indicated that she had discussions with US Treasury Secretary Bessent during yesterday’s G7 finance ministers meeting regarding the coordination of critical materials, both expressing “concerns about the one-way weakening of the yen.” The market appeared largely indifferent to this initial step on the intervention escalation ladder. Options totaling approximately $650 million at JPY158.50 are set to expire today. Since the peak was noted, the dollar has remained largely above JPY158.80.

In yesterday’s trading session, sterling exhibited an outside day, slightly breaching the 200-day moving average just below $1.3400 and achieving a peak of $1.3485. This level coincided with the 50% retracement of the decline from last week’s high, which was nearly $1.3570. It closed above the high from last Friday (~$1.3450). Today, it is trading within a narrow range of approximately $1.3460 to $1.3485, as it consolidates at the upper end of yesterday’s range. Approximately GBP500 million in options at $1.34 are set to expire today. The greenback remained within the range established last Friday during a consolidative session against the Canadian dollar yesterday. It is noteworthy that the US dollar hit a five-month low the day after Christmas (~CAD1.3645) and subsequently increased to CAD1.3920 before the weekend. The price is currently confined within a narrow band, approximately CAD1.3865 to CAD1.3890, situated at the lower end of yesterday’s trading range. Options for 900 million at CAD1.3925 expire today. Initial support is located in the CAD1.3850-60 range.

The Australian dollar climbed just above $0.6765 last week before pulling back a cent as the weekend approached. Yesterday’s gain recouped just over fifty percent of its prior losses. The upcoming resistance is identified around $0.6730; however, it encountered a pause just above $0.6715 today and is testing $0.6700 during the European morning session. Approximately A$2 billion in options are set to expire today, with strike prices ranging from $0.6700 to $0.6710. Typically, at the beginning of the year, the dollar has been observed trading above MXN18.00, yet it has not managed to maintain a position above this level. The greenback has established a support level near MXN17.87, and a breach of this level indicates the potential for a further decline. The dollar remains positioned above MXN17.90 today, having spent minimal time above yesterday’s close, which was just under MXN17.93. The dollar is experiencing an inside day versus the offshore yuan, fluctuating within the range of approximately CNH7.9670 and CNH7.9760. Yesterday’s low near CNH6.9630 marked the dollar’s lowest point and the yuan’s strongest position since May 2023. The PBOC adjusted the dollar’s reference rate today to CNY7.0103, down from CNY7.0108 yesterday.